New EU Bank Rules Aim to Increase Competition

New European Union rules from January 13 aim to prize open banking to more competition by allowing outside firms to make payments and offer other financial services by directly accessing a customer's account.
The new directive will also ban surcharges for consumer debit and credit card payments. The Payments Services Directive 2, or PSD2, is a major reworking of the payments rules to reflect rapid advances in technology like smart phones for accessing financial services, RTE reported.
The new system will comprise not only financial institutions but also retailers, high tech companies, gaming, social media and potentially any firm that involves financial information or transactions.
Vice-President for Financial Stability, Financial Services and Capital Markets Union, Valdis Dombrovskis, at the European Commission, said the legislation is another step towards a digital single market in the EU. "It will promote the development of innovative online and mobile payments, which will benefit the economy and growth," he said.
He also said the banning of debit and credit card surcharges could save more than €550 million ($667 million) a year for EU consumers. "Consumers will also be better protected when they make payments," he added.
The introduction of PSD2 is meant to create a level playing field for new entrants and traditional market players, offering more opportunities for competition and innovative payment services.

Third Party Services
According to PricewaterhouseCoopers, banks under the new directive need not only offer services to be consumed by third parties, but will also need to think about how to use third party services for their own offerings.
PwC said the big difference for consumers is that that they are now in full control of the services they want to consume.  
"Application Programming Interface will be the new channel for doing business. As banking services are unbundled, consumers, through the API economy, will determine where the demand will come from and reshape how society is going to work," it added.
The main elements of the new directives are:
- With a customer's permission, a bank must allow an outside company authorized by regulators to take a payment directly from an account for goods and services.
- A bank must allow an outside firm to access transactions history from a customer's account for the purposes of aggregating information from several current and savings accounts into a single "dashboard".
- Tougher customer authentication of online payments will be introduced from the second half of 2019.
- Banks will have to spell out reasons for refusing an application for a new account, making it harder to hide behind generic concerns like money laundering.
- Banks are required to give refunds for unauthorized transactions.
- Outside payment firms must respond to complaints within 15 days.
- Firms authorized under PSD2 are not allowed to take deposits or grant loans like traditional banks.
- Most PSD2 firms that take data from a bank account will also come under a separate EU General Data Protection Regulation that comes into force in May to reinforce safeguards on personal data.

Markets Doing Draghi’s Job
Financial markets have started doing European Central Bank President Mario Draghi’s job for him. The euro hit three-year highs and government bond yields rose after eurozone rate-setters hinted they may change their tune on how long monetary policy will stay ultra-loose, Reuters reported.
These market moves amount to a tightening of monetary conditions. That buys Draghi some time to phase out negative rates that are increasingly at odds with accelerating growth.
The single currency traded above $1.21 for the first time in three years on Friday while 10-year German bond yields hit a five-month peak of 0.54%. The impetus for those moves was the release a day earlier of the minutes of the ECB’s December policy meeting, which showed policymakers might adjust their message to acknowledge the eurozone’s strong growth.
That doused speculation the central bank might extend its asset purchases beyond the end of September and boosted expectations that its deposit rate could rise from a record low of minus 0.4% before the end of the year.
But traders are tightening monetary conditions before the central bank does. ECB officials estimate that a 10% rise in the euro’s value against the currencies of its major trading partners shaves about 0.4-0.5 percentage points off regional inflation.